The Government Accountability Office has released a report on group purchasing organizations which details the steps taken by GPOs to ensure transparency, fair contracting and discount product pricing for hospitals.
“With so many votes of confidence affirming the value of GPOs and 98 percent of all hospitals reliant on GPO low-cost contract pricing, the market has spoken loudly and the facts are clear,” said Health Industry Group Purchasing Association President Curtis Rooney. “We urge people to read the GAO report for themselves to get unbiased, non-political information proving that GPOs operate in a competitive market that is working and bending the healthcare cost curve.”
The GAO interviewed the six largest GPOs, as well as several hospitals and device vendors, and determined that hospitals increasingly rely on GPOs as the primary means to help keep the costs of medical products and services in check.
“The report affirms that our aggressive efforts have yielded increased transparency and low administrative fees in healthcare contracting, the second largest expense for hospitals after the cost of labor,” said Rooney. “GAO and academic research have documented the significant cost savings and the wide range of valuable services that GPOs provide to hospitals, which is why virtually all American hospitals voluntarily contract with GPOs.”
Key GAO findings include:
- 90 percent of hospitals voluntarily contract with GPOs and use an average of two to four GPOs per facility.
- All GPOs have programs to evaluate innovative technologies that could provide a meaningful benefit to patients and can take steps to rapidly introduce these technologies in the marketplace.
- GPOs have responded to the needs of hospitals and long-term care providers by adding a broad range of services to improve quality, safety and economy.
- Three of five device vendors interviewed indicated they are paying lower administrative fees, and that fees are more consistent and predictable as a result of transparency initiatives voluntarily undertaken by GPOs.
- The average weighted contract administrative fee for the GPOs interviewed ranged from 1.22 percent to 2.25 percent.
- Multi-sourcing device contracts may be less cost-effective than anticipated, as some medical device suppliers have increased device prices in response.
- All GPOs reported that their codes of conduct had an impact on their contracting practices, innovative product selection, administrative fees, conflict of interest policies, transparency and accountability of GPO practices.
All GPOs interviewed offered a broad range of services to hospitals, including individualized contracting services, product evaluation services, such as clinical evaluation and standardization, and assessment of new technologies. They also distinguish themselves in a highly competitive marketplace by offering additional services designed to meet the needs of hospitals, including e-commerce and benchmarking services, patient safety services, clinical resource guides and supply chain services to help manage in-house pharmacies. GPOs provide many of these additional services at no cost to hospitals through nominal administrative fees received from vendors under GPO contract.
In 2005, in consultation with Congress, group purchasing organizations created the Healthcare Group Purchasing Industry Initiative, which has led to increased transparency in contracting, increased the number of multi-source contracts and helped develop technology innovation provisions.
Voluntary initiatives undertaken by GPOs include establishing and revising codes of conduct, creating ethics hotlines for employees, hiring compliance officers and convening best practices forums, where Congressional staff is invited to monitor progress.
“Although the GAO report overwhelmingly demonstrates the positive impact of GPO initiatives on transparency in the contracting process, we will continue to work to improve the contracting process,” said HGPII Chairman Lee Perlman. “The group purchasing industry, with input from Congressional staff and ethics experts, has recently adopted new measures aimed at further increasing openness and accessibility, including the establishment of a supplier grievance evaluation process to resolve contracting disputes through the American Arbitration Association, and an Independent Advisory Council providing independent, third-party oversight of compliance with the code of conduct.”